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TMI Blog1970 (10) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... directing inclusion of the shares in the list of quoted shares. The exchanges acquiesced in the direction. We need, however, not express any final opinion on this question. We are informed at the Bar that the Calcutta Stock Exchange has applied for certificate to the High Court of Delhi and that application is pending. We need not pre-judge the result of that application or the appeal, if any, which may be filed in this court. Appeal dismissed. - 1772 AND 1773 OF 1970 - - - Dated:- 19-10-1970 - J.C. SHAH, K.S. HEGDE AND A.N. GROVER, JJ. C.K. Daphtary, S.P. Nayar, N.A. Palkhivala, A.M. Parikh, G.S. Chatterjee, B.N. Kirpal, Bishambar Lal, B. Sen and O.P. Khaitan for the Respondent. Miss Bhuvnesh Kumari, Santosh Chatterjee, M.C. Setalvad, C.M. Oberoi, J.B. Dadachanji, J.N. Shroff, A.N. Sinha, Rathin Das and S.K. Dholakia for the Intervener. JUDGMENT Shah, J. On May 29, 1965, the Allied International Products Ltd., hereinafter called "the company", issued a prospectus offering to the public for subscription 5,00,000 equity shares of Rs. 10 each and 10,000 cumulative preference shares of Rs. 100 each, and intimating that "applications are being mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment dismissed the appeals. In the orders recording dismissal it was recited that the Exchange did not grant the permission for the shares to be "enlisted" before the expiry of four weeks from the date of closing of the subscription list as required by section 73(1) of the Companies Act, 1956, and that the Exchange did not notify any extension of time for the grant of the permission within four weeks. The company then moved petitions in the High Court of Delhi for the issue of writs quashing the order passed by the Central Government in appeals under section 22 of the Securities Contracts (Regulation) Act, and the orders of the Stock Exchanges rejecting the applications of the company as "void, illegal and of no effect", and for orders directing the Stock Exchanges to "grant enlistment" of the shares of the company, and further declaring section 22 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and section 73 of the Companies Act, 1956, ultra vires the Constitution of India. Rangarajan, J. was of the opinion that grant of permission by the Bombay Stock Exchange was valid, and that allotment of shares did not become void, merely because one out of the th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the directors of the company shall be jointly and severally liable to repay that money with interest at the rate of five per cent, per annum from the expiry of the eighth day:............. (5) For the purpose of this section, permission shall not deemed to be refused if it is intimated that the application for permission though not at present granted, will be given further consideration.............. (7) No prospectus shall state that application has been made for permission for the shares or debentures offered thereby to be dealt in on any stock exchange, unless it is a recognised stock exchange". By the Securities Contracts (Regulation) Act, machinery is set up for extending recognition to and for withdrawal of recognition to stock exchanges and for other incidental matters such as the making of rules and bye-laws of the exchange. By section 22 of the Act it is provided : "Where a recognised stock exchange acting in pursuance of any power given to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o subscribe to its capital, unless its shares are quoted in an approved stock exchange. All public companies are anxious to obtain permission from reputed exchanges for securing quotations of their shares and the management of a company is anxious to inform the investing public that the shares of the company will be quoted on the stock exchange. To prevent malpractices, Parliament enacted legislation which aimed at securing control over the proper functioning of the stock exchange, and also placed stringent restrictions upon the representations made by the companies in issuing prospectus inviting subscriptions. Parliament enacted the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and simultaneously made provision in section 73 of the Companies Act, 1956, for ensuring that representations made in the prospectus are carried out and fluidity of the investment by the holder of stock is ensured by procuring permission for quotation of shares in a recognised stock exchange. Under sub-section (1) of section 73 an application for permission to secure quotation if not previously made, shall be made before the tenth day after the first issue of the prospectus, and if the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration", the application is deemed to be refused. If the stock exchange so desires it may intimate that the period is being extended to seven weeks. The exchange may say nothing more within the extended period, in which case, on the expiry of the extended period, the allotment becomes void. If, however, within the four weeks, or within the extended period of seven weeks, the exchange intimates that even though the application for permission is not at present granted, the application will be given further consideration, the application is not deemed to be refused until it is finally decided. The application for allotment of shares and acceptance thereof constitute a contract between the company and the applicant. Section 73(1) of the Companies Act imposes a penalty whereby the allotment of shares becomes void on the happening of the contingency specified therein. The imposition of penalty depends upon the volition of the exchange and when imposed operates to invalidate all contracts resulting from allotment of shares between the applicants for shares and the company. Such a provision must be strictly construed. Unless the statute in clear terms so provides, when the exchange inti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quotation of shares in an exchange, the allotment will be invalid because another exchange has not granted the permission. That this is the true meaning of section 73(1) is clear from the fact that the penalty of avoidance of allotment of shares is attracted not only where the permission applied for has not been granted, but where no application has been made within the prescribed period. If applications are made to several exchanges, some within the period of ten days after the first issue of the prospectus, and some beyond, or one or more applications, but not all, is or are defective, and the error is not rectified, it would be unreasonable to hold that because some of the applications are made beyond the tenth day after the first issue of the prospectus, or are defective, and are liable to be rejected, the applications properly made before some of the exchanges are also ineffective and the allotment made may be invalid. Counsel for the Calcutta Stock Exchange urged that where a person is induced to subscribe for shares relying upon a representation that an application is made or intended to be made for quotation of the shares in an exchange near his home-town, and it is foun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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